Commentaries

Using Philanthropy to Create a Booming Social Enterprise Sector

December 11, 2013

Sonal Gor, after gaining experience in the non-profit sector, went on to obtain an MBA in International Economics and Finance. She also spent time gaining a better understanding of corporate social responsibility and responsible investing at the United Nations Global Compact. Currently eager to make social development endeavors functioning participants of a market economy, she advocates social entrepreneurship and responsible business.

Over the past several years, impact investing has become an increasingly promising beacon of hope for social and economic development professionals. It appears to be the ideal way of creating sustainable change. However, for the sector to prosper, it will need to garner more support from large-scale investment professionals – pension funds, asset managers, etc. This will not happen until social investments become more profitable or at least a better-proven source of financial return. The sector is still in its nascent stages, and until there are more documented examples of successful social enterprises, investors will be hesitant to devote substantial funding to impact investments. The question becomes: How do we prove the effectiveness and profitability of social enterprises? Here’s where philanthropy becomes a key player.

In the United States alone, individuals, foundations and companies donate hundreds of billions of dollars to philanthropic endeavors every year. While a good portion of this must go towards immediate concerns and disaster relief, injecting an equally good portion in social investments will serve to develop the industry and create more sustainable solutions to development issues.

In order for social enterprises to function with the efficiency of strictly for-profit businesses, it would be advantageous to structure them as close as possible to conventional business models. This would include appropriate incentive structures, in-depth market analysis and creating a profitable track record to assure investors that there would be financial return in the future. Although it is unlikely that traditional venture capilaists would commit investment in social enterprises in the immediate future, that effort would develop the industry and in effect, philanthropy will help transition the social development sector into an efficient player in a market economy.